The 2010 Affordable Care Act requires virtually all Americans to have health insurance, or pay a penalty. Officially, the penalty clock started ticking on March 31. And your reasons for not having health insurance – political, moral, financial – do not matter. So I thought I’d take a closer look at who is affected by the new penalties and how.

First of all, if you’re insured through a government program — Medicare for people over age 65 or Medicaid for low-income individuals, that is your coverage — you do not have to worry about penalties.

If not, you must have proof of insurance to avoid the penalties, be it through an employer, bought on the open market or on one of the government health-insurance exchanges. With very few exceptions, if you do not have health insurance you will face an escalating annual penalty starting this year, to be paid as part of your 2014 tax filing.

High-net-worth individuals and families who have self-insured in the past are not exempt.

Not too Late
There’s still time to buy insurance to avoid the penalties for 2014. That’s correct – it is not too late. On March 31, open enrollment did end for the government-sponsored exchanges. So you cannot now buy coverage through those exchanges or qualify for any insurance premium subsidies based on your income. (The exchanges re-open for enrollment this November, for 2015 coverage.)

However, you can still buy insurance — directly from an insurance company, through an agent or broker, or at one of the many online insurance brokerages — just as in the past. In doing so, you need to make sure your plan qualifies as “minimum essential coverage,” (defined on this government webpage) in order to avoid penalties.

The Penalties
The penalty for not having health insurance is levied on a monthly basis — for each month that you do not have coverage in 2014, starting this April. (Note that if you’re uninsured for less than three months during any one year, you’re not penalized.)

The monthly penalty for 2014 is calculated one of two ways. If you — or your dependents — don’t have insurance that qualifies, you’ll owe whichever of these amounts is higher:

• 1% of your annual household income — divided by 12 (up to a cutoff — see note below);
• $95 per person for the year and $47.50 per child under 18 — divided by 12. The maximum monthly penalty in 2014 per family using this method is $23.75 per month.

The monthly penalty increases every year. In 2015, it rises to the monthly equivalent of 2% of income, or $27.08 per month. In 2016, those amounts increase to 2.5% of income or $57.92 per person per month. After that, the base amount stays the same but is adjusted for inflation.

Note, however, that the actual penalty you’ll pay is limited to the LESSER of:

• The total monthly penalties as shown above; or
• The average annual cost of a “bronze” plan for the uninsured members of your family. Bronze plans are sold on the government-sponsored exchanges and have relatively low premiums.

Let’s Get Specific
To get an idea of how the penalties work, take a look at the table below. It shows minimum and maximum penalty levels, for a single person and then for a family. The first income level shown is the level at which the penalty will be at a minimum. The second income level is when the penalty will be at its highest level.

Note that the amounts shown for 2014 are for nine monthly penalties. The 2015 amounts are for 12 monthly penalties.

As you can see, the maximum penalties at higher income levels can be substantial. For calculating penalties, I found just this one online calculator specific to this topic.